My research interests are at the intersection of financial accounting, taxation, macro-accounting, and ESG (Environmental, Social, and Governance).
Publications
ESG Rating Competition and Rating Quality (with Svenja Dube and Cai Chen).
Link: https://doi.org/10.1111/1475-679X.12624
Abstract:
This paper examines how increased competition among environmental, social, and governance (ESG) rating agencies relates to ESG rating quality. We exploit the entry of Sustainalytics as a new ESG rating agency in 2010. We conduct a difference-in-differences analysis and provide three main findings. First, we find that higher competition decreases incumbents' ESG rating disagreements of the same scope. The negative relation between competition and ESG rating disagreement persists for same-scope rating metrics not covered by Sustainalytics, suggesting that neither learning nor herding drive the results. The relationship between competition and rating disagreement strengthens for firms with more ESG disclosures, which generally require more effort to analyze. Second, we find that incumbents' ratings of ESG concerns are more strongly associated with future negative ESG news for firms additionally covered by Sustainalytics. This finding is consistent with competition improving ratings' ability to predict future negative ESG incidents. Third, we find that incumbents evaluate more difficult-to-measure outcome metrics for firms covered by Sustainalytics, consistent with competition inducing more effort. Overall, our findings suggest that competition serves as an implicit disciplining mechanism of ESG rating agencies' quality.
Aggregate Deferred Tax Asset Valuation Allowance and GDP Growth (Job Market Paper).
Abstract:
This paper examines whether deferred tax asset valuation allowance growth, as a measure of expected future performance, aggregated at the macroeconomy level, conveys information about future GDP growth. Using hand-collected tax footnote data, I find that quarterly aggregate valuation allowance growth is negatively associated with future GDP growth up to four quarters ahead and this relationship is incremental to existing accounting and macroeconomic GDP growth indicators. Additionally, the findings indicate that the documented association is driven by the corporate profit growth component of GDP growth and is stronger for domestic firms and recessions. The findings further suggest that aggregate valuation allowance growth provides information that cannot be obtained from other sources of tax information, other sources of management’s private information, or from professional macro forecasters. Collectively, the evidence indicates that aggregate valuation allowance growth provides incremental unique forward-looking information about future GDP growth.
The Impact of U.S. Tariffs on U.S. Firms (with Yaniv Konchitchki and Leslie Robinson).
Abstract:
We examine how U.S. import tariff increases and decreases affects the accounting performance, investment activities, and valuation of U.S. firms. We first examine overall effects on U.S. firms and document that, after a material tariff increase, U.S. firms appear to benefit by operating in protected industries. They pass through costs and experience no change in profitability, they increase capital investment, and their market values rise. U.S. firms facing material tariff decreases predictably decrease capital investment, but also increase acquisitions, experience operating margin expansion and show no change in valuation. Overall, U.S. firms appear to benefit, on average, from tariff increases but are not necessarily harmed by tariff decreases. We also explore heterogeneity across firms and find mainly that firms’ investment responses differ. Larger, more profitable firms with greater liquidity, are generally able to respond to tariff increases and decreases by cutting or expanding investment and see commensurate increases or decreases in firm value.
The Effect of ESG Rating Agency Coverage on Disclosure of Green Innovation
Abstract:
We examine whether ESG rating agency coverage influences firms’ decisions to disclose green innovations through patents. Firms covered by ESG rating agencies face a trade-off, as coverage raises both the proprietary costs and reputational benefits of green patenting. Using ASSET4's 2017 expansion to Russell 2000 firms as an exogenous shock, we find newly rated firms increase green patent filings, suggesting reputational benefits dominate. This finding does not extend to non-green patents. Green patent filings increase more for firms with greater potential reputational upside and a larger backlog of green technologies. Green patenting is associated with higher environmental innovation scores, which potentially enhance firms’ credibility with stakeholders. Consistent with this possibility, firms increasing green patent filings after ESG coverage attract more institutional ownership, particularly from BlackRock. Our findings suggest ESG rating coverage incentivizes firms to disclose green activities, revealing a previously unrecognized mechanism for expanding public knowledge and accelerating green innovation.
Work in Progress
Aggregate Stock Returns and Short Interest over time (with Charles Wasley and Jason Xiao)
ESG Ratings and Corporate Credit Ratings.
Taxes and ESG Ratings.